Question
In: Finance
You own a wholesale plumbing supply store. The store currently generates revenues of $ 1.00 $1.00...
You own a wholesale plumbing supply store. The store currently generates revenues of $ 1.00 $1.00 million per year. Next year, revenues will either decrease by 10.0 % 10.0% or increase by 5.0 % 5.0%, with equal probability, and then stay at that level as long as you operate the store. You own the store outright. Other costs run $ 900 comma 000 $900,000 per year. There are no costs to shutting down; in that case you can always sell the store for $ 500 comma 000 $500,000. What is the business worth today if the cost of capital is fixed at 10.0 % question mark 10.0%? (Hint: Make sure to round all intermediate calculations to at least four decimal places.) What is the business worth today if the cost of capital is fixed at 10.0 % question mark 10.0%? Today the business is worth $ nothing . (Round to the nearest dollar.)
Solutions
jeff jeffy answered 1 year agoRelated Solutions
You own a wholesale plumbing supply store. The store has generated revenues of $1M this year....
You own a wholesale plumbing supply store. The store has
generated revenues of $1M this year. Next year, revenues will
either decrease by 10% or increase by 5%, with equal probability,
and then stay at that level as long as you operate the store. You
own the store outright. Other costs run $0.9M per year. The cost of
capital is 10%.
a) What is the value of the store next year if the revenues
decrease? Include next year’s profits in...
Background information for the rest questions: You own a small manufacturing plant that currently generates revenues...
Background information for the rest questions:
You own a small manufacturing plant that currently generates
revenues of $2 million per year. Next year, based upon a decision
on a long-term government contract, your revenues will either
increase by 20% or decrease by 25%, with equal probability, and
stay at that level as long as you operate the plant. Other costs
run $1.6 million dollars per year. You can sell the plant at any
time to a large conglomerate for $5...
You own a small manufacturing plant that currently generates revenues of $2 million per year. Next...
You own a small manufacturing plant that currently generates
revenues of $2 million per year. Next year, based upon a decision
on a long-term government contract, your revenues will either
increase by 20% or decrease by 25%, with equal probability, and
stay at that level as long as you operate the plant. Other costs
run $1.6 million dollars per year. You can sell the plant at any
time to a large conglomerate for $5 million and your cost of
capital...
You own a small manufacturing plant that currently generates revenues of $2 million per year. Next...
You own a small manufacturing plant that currently generates
revenues of $2 million per year. Next year, based upon a decision
on a long-term government contract, your revenues will either
increase by 20% or decrease by 25%, with equal probability, and
stay at that level as long as you operate the plant. Other costs
run $1.6 million dollars per year. You can sell the plant at any
time to a large conglomerate for $5 million and your cost of
capital...
make the following journal entries for a wholesale plumbing supply distributor comany. 1) Check No. 1599...
make the following journal entries for a wholesale plumbing
supply distributor comany.
1) Check No. 1599 for $15,000 is issued to the bond sinking fund
trustee, Chicago Trust Co., for deposit in the sinking fund.
2) The custodian of the petty cash fund submits the following
receipts for reimbursement and reports a cash-on-hand count of
$8.
Postage stamps used $38
United Parcel (transportation out) 23
Cash on delivery postage (freight costs) 51
Christmas office decorations 30
Check No. 1601 is...
You work as a wholesale person for a plumbing company. One of your customers, a contractor...
You work as a wholesale person for a plumbing company. One of
your customers, a contractor has an open line of credit with your
company for $10,000 worth of products He is currently at his limit;
however, he is not overdue. He has just received word that he has
been awarded a $40,000 plumbing contract at the local airport. The
contract requires he supply $9,000 worth of plumbing products. Your
customer does not have the cash to pay for the...
You work as a wholesale person for a plumbing company. One of your customers, a contractor...
You work as a wholesale person for a plumbing company. One of
your customers, a contractor has an open line of credit with your
company for $10,000 worth of products He is currently at his limit;
however, he is not overdue. He has just received word that he has
been awarded a $40,000 plumbing contract at the local airport. The
contract requires he supply $9,000 worth of plumbing products. Your
customer does not have the cash to pay for the...
Richard Jackson and Melissa Aaron own and operate the Midwest Office Supply store. The following transactions...
Richard Jackson and Melissa Aaron own and operate the
Midwest Office Supply store. The following transactions involving
notes and interest were completed during the last three months of
2019:
October
3.Received a $8,886, 7 1/2%, 30-day note from Hansen
Appliance in payment for
sale of merchandise.
7.Received a $12,000, 9%, 45-day note from Jefferson
Book Company in payment
of an account receivable
9.Received a $12,775, 10%, 60-day note from Josh
Martinez in payment for sale
of merchandise
11. Issued a...
You run a perpetual encabulator machine, which generates revenues averaging $25 million per year. Raw material...
You run a perpetual encabulator machine, which generates
revenues averaging $25 million per year. Raw material costs are 60%
of revenues. These costs are variable−they are always proportional
to revenues. There are no other operating costs. The cost of
capital is 11%. Your firm’s long-term borrowing rate is 8%.
Now you are approached by Studebaker Capital Corp., which
proposes a fixed-price contract to supply raw materials at $15
million per year for 10 years.
a. What happens to the operating...
You own all of the equity in a debt-free app development business that generates cash flows...
You own all of the equity in a debt-free app development
business that generates cash flows of $590,000 each year in
perpetuity. The cost of assets, kAssets is 10 percent
and the tax rate is 20 percent. What is the value of your
all-equity firm?
Excel Template
Value of firm
$
If you decide to replace $1 million of equity by borrowing $1
million at an interest rate of 6 percent how much would the value
of the firm increase?...
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